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naraburns  nihil supernum  1yr ago (text post)   31649 thread views

Culture War Roundup for the week of December 5, 2022

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Long time motteizen, new pseudonym for extra privacy.

Some friends and I are launching a new anonymous group blog: https://www.theprotocols.net/ Many of us have interesting culture-war related takes that we post on forums like these, or on our group chats, but we felt like we needed a place to more permanently publish things that deserved a wider audience. Subscribe via ye olde email or RSS to see posts as they come out.

Our first post is "Regulated Banks Are Just Stealing Your Money Slowly". Here is the TLDR:

In the wake of yet another crypto scam blowing up, smug commenters are shaking their heads and saying: “This disaster is the consequence of jettisoning 100-years of regulatory progress. Traditional FDIC insured banks have never lost customer funds this way, not even in the 2008 crash.”

...Newsflash: FDIC insured banks are stealing your money. They do it very slowly, but the total amount is very significant.

Well, to be more accurate, it is the government stealing your money, not the banks. Actually, to be more accurate, it is impossible to pin down who exactly is stealing your money, because banks should be seen as arms of the state, and the state is the arm of an ecosystem of elites and elite clients, and the entire thing has grown fiendishly complex because it is in everyones interest to allow it to be complex. In fact, the real bandit may be your neighbor who bought a million dollar home with a 30-year, 2% interest rate loan. Or maybe the thief is your friend who cashed out on Apple stock after Apple funded a stock buyback with a loan at 1% interest. (Don’t go screaming at your friend – hate the game not the player).

Complaints about the “banks” or “guvmint” stealing money via inflation are very old and are often seen as the ravings of cranks – but I don’t think many people appreciate how bad the problem has become in the last two decades. Let us go through the numbers, courtesy of the St. Louis Fed. Well, to be more accurate, it is the government stealing your money, not the banks. Actually, to be more accurate, it is impossible to pin down who exactly is stealing your money, because banks should be seen as arms of the state, and the state is the arm of an ecosystem of elites and elite clients, and the entire thing has grown fiendishly complex because it is in everyones interest to allow it to be complex. In fact, the real bandit may be your neighbor who bought a million dollar home with a 30-year, 2% interest rate loan. Or maybe the thief is your friend who cashed out on Apple stock after Apple funded a stock buyback with a loan at 1% interest. (Don’t go screaming at your friend – hate the game not the player).

...We start with a simple yeoman saver who wants to exchange present labor for some sort of medium-of-saving...So he does the simplest thing: he puts his money in a 3-month certificate of deposit at his local regulated, FDIC insured, plain vanilla bank and continually rolls it over. No default risk, no interest rate risk.

If our yeoman made a deposit in 2002, according to Fed data, his account would have gained a total of 36% over the last twenty years thanks to the the interest paid out. But during that time the Consumer Price Index rose 68%! In 20 years, our yeoman would have lost 19% of his purchasing power! Actually it’s worse than that. The amount his money was diluted is actually more than CPI inflation, but since economic productivity increased, his effective purchasing power was not decreased by the full amount of the dilution....

The distinction between monetary dilution and CPI inflation is ignored in most college economic courses, but it is very important. Think of it this way: Imagine I buy a stock in a boring, stable company. A share of the stock happens to have the same price as ten 50” TVs. Over 20 years, the CEO and the board fraudulently and secretly dilute the stock by 50%, making my shares 50% less valuable. So if productivity had stayed constant, my shares would lose half their purchasing power, only being tradable for 5 TVs instead of 10. However, productivity did not stay constant, Chinese factory workers have made it 40% more efficient to buy TVs. Thus one share can now buy seven 50” TVs. My ability to turn my shares into the real good of a TV only decreased by 30%. Now given all this is it fair for the CEO to say, “hey, I only diluted you by 30%, not 50%!” Or, consider if TV factory productivity had doubled, and thus my purchasing power held constant, would it be fair for the CEO to say, “I didn’t steal from you at all, since you can still buy the same number of TVs with your share of stock.” No and no. The dilution is a completely separate issue from the price of tea (or TV’s) in China.

When we look at National Income change over the last 20 years, we see that our simple account owner lost 40% of his money. That’s not quite an FTX-level scam, but that is pretty serious theft.

We could also look at the performance of our yeoman saver’s bank deposits versus holding assets that are much harder to dilute – such as gold or silver. This shows us our depositor lost 50% to 60% of his savings. We could also compare against alternative investments, such as the S&P 500 ETF or real estate. Here is the full chart:

Purchasing-power-lost.png

No matter how you look at it, our yeoman saver has been jobbed. Even if he chooses a modestly longer duration for his store of value, such as a 3-year U.S. Treasury, our saver loses 12% relative to CPI and 35% relative to monetary dilution.

In order to simply stay in place, he must make a risky investment. Our saver could get a higher interest rate by purchasing a long-term bond. But that introduces large interest rate risks. Our depositor who bought a 30-year bond last year when interest rates were historically low would have just lost 30% of his money.

Now hopefully you see why we live in the golden age of asset bubbles. By default, if you put your money in the stodgy, regulated bank, you will lose your money via dilution. So everyone is looking for a place simply to stash their money that won’t get diluted. All the savings in the world sloshes around chasing some asset that can hold value. As any given asset becomes popular it shoots up in bubble, with the greedy and the scammers piling on too. Even the prudent investor cannot discern what asset is in a bubble, and what asset is properly priced. Is Silicon Valley real estate currently in a bubble? Or is it properly priced based on expectations in the next 20 years of lower interest rates and more monetary dilution? Is the stock market over-valued based on a long-term analysis of P/E ratio? Or is this the new normal based on a government that will inflate and lower interest rates in order to “make number go up”?

So here is our plea to any political influencer who thinks the answer to banking crises and crypto crises is just moar regulation: the number one priority should be ensuring the average person has a place where they can simply deposit their money and not have it diluted or inflated away. As long as the default state is to lose much of your money, people will be seeking a riskier, higher-yielding outlet – whether that be the type of money market accounts that crashed in 2008 or a “Nyan Cat” NFT....

To any reader who just wants to save for retirement – well, we don’t want to give financial advice because we would feel bad if we reverse our view next month and forget to tell you. And are you really going to trust a brand-new anonymous zine for investing tips? We can tell you that we here at Protocol have our own internal debates between bitcoin maximalists and those who believe in more diversification. Generally, we have our own net worth spread out among: short-term U.S. treasuries, dividend paying stocks, American and international equity index funds, gold, bitcoin, Urbit stars, our own startups, and our own homes. “Crypto” is bad, bitcoin is great, but do learn how to self-custody.

Myself (and the author of the post through this account) will be happy to answer any questions or respond to comments about this post.

Also, we are open to publishing guest blog posts if you have something you need to get off your chest and want to publish anonymously to the web. You can DM me here or email the contact address on the web site. Cheers!

EDIT: Looks like I did a really poor job of making a TLDR for the original post. I've added a bit more context, but I advise clicking through and reading the whole thing before leaving a comment.

Congrats on founding your blog, I wish you and your companions well.

The problem with the theory that there is anywhere better to put your money than a bank is that you have to spend money to secure it. A significant lump of gold doesn't hold its value for you over time. The gold itself holds its value, but not for you. You have to guard it, you might lose it. If you lose it, you lose it all.

If you don't guard it, you risk theft and total loss. Your hypothetical yeoman saver is going to have, what, let's say $10,000.00. So he buys 5 ounces of gold. He can choose to keep it on him, like a pimp, but if he gets mugged there goes his life savings. Ditto keeping it at home, he better not get burgled when he isn't at home, better make sure no one ever finds out you're a goldbug. So while any single hypothetical yeoman farmer might get lucky and hang onto his retirement savings throughout his life, we should discount the value of physical savings like gold and silver by the odds of theft of that gold in the course of that 20 years. Of course, your level of personal security varies with who you are as a person. You might be big, tough, and live in a town where everybody knows you and either likes you well enough to protect you or knows that too many others like you too much to risk messing with you. But the unbanked small, weak, the stranger, the unloved, those who the police aren't interested in protecting, they can't carry their wealth with them; without banking they pretty much just never accumulate much mobile wealth at all in a modern and disconnected world.

The alternative in non-financial/banking investments in something concrete and productive like land. But land must be worked to give produce. Either by the owner or by a tenant. Any landlord will tell you, good tenant's are hard to find. Worth their weight in gold. The tenant who does his own repairs, pays his own costs, pays his rent on time, is rare. So if you want to invest in land, you're paying the costs (either by labor or by percentage) every year you own it. In cultures that are built around those kinds of leases, the costs are lower. But we don't live in those cultures.

I won't even countenance the idea of investing directly in a small business in this day and age. The risk of total loss without an owner putting blood, sweat, and tears into the business is basically 100%; even with that it's pretty high over 20 years.

So we probably need to start with eliminating the cash economy, the lack of connection and community among atomized individuals. But failing that, you're gonna need a bank.

Bitcoin does not cost anything to store, though you do have to spend some time learning how to self-custody securely. It's a lot easier than it was ten years ago, very low risk of losing your keys or having them stolen if you do it well.

Storage costs of gold are overblown. You can fit a million dollars of gold in a standard $70 a year safe deposit box. GoldMoney.com or BullionVault.com will store it for you with high security for 0.1% a year -- so that is a 2% loss over 20 years. That is far less than the numbers cited in the article for the monetary dilution losses from holding cash in a bank.

very low risk of losing your keys or having them stolen if you do it well.

Unless someone knows that in your brain is the key to $100,000 of untraceable, irrecoverable currency, in which case a 9mm held to your knee is sort of a universal key. With crypto transactions being, ideally, irreversible and untraceable, it's much riskier than gold coins because you can't even catch the guy with the gold. Alternatively, if crypto transactions are traceable and reversible, you are at the mercy of the government system, they can confiscate your money without even sending out the goon squad.

You have me on the safe deposit box, but I'm not sure I'd really trust a storage company with a significant fraction of my net worth. My bank can't fiddle with the numbers, I can show my math and my records. What do you do if your gold comes out lighter. Probably paranoia, I'm not sure that any of that is accurate, just vibes.

Unless someone knows that in your brain is the key to $100,000 of untraceable, irrecoverable currency, in which case a 9mm held to your knee is sort of a universal key.

Do not tell anyone who much crypto you have. For a wrench attack, the thief would have to know how much you have, otherwise you just open up a side wallet and only give them a small portion of your funds. Also, you can use multisig or split up your seed so that you literally could not give an attacker your keys on the spot even if you wanted to.

But yeah, given a high enough rate of crime, nothing is safe, kidnapping loved ones is always a risk, no matter what form of wealth you hold.

You have me on the safe deposit box, but I'm not sure I'd really trust a storage company with a significant fraction of my net worth.

Safe deposit boxes aren't perfect as bank customer service has declined. There are horror stories about banks shutting down a branch and not properly notifying customers and the deposit boxes ending up in limbo somewhere.

Do not tell anyone who much crypto you have.

Which is practical, as long as Crypto is an extremely marginal aspect of both the world economy and your personal net worth, or you live as a kind of digital nomad cyberpunk gray man. But it rather precludes it as a primary store of value for settled individuals and communities as a whole. If we ever reached a point where most wealth was stored through crypto, you would just have to target random rich people.

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